Data and Geopolitics Remain in Focus

It was a bank holiday for most markets yesterday and with that action remained quiet for much of the day. In the US however, markets were open and traded higher into the open following weekend news the US would once again avoid a shutdown following an agreement being reached in Congress. The USD index traded relatively flat on the day, the benchmark index for the greenback has been in consolidation for over a week now as it hangs near six month lows and plenty remains in the pipeline as markets look towards the Fed for potential rate hikes, but also to President Trump as they await some real detail on his tax plan.

Data from the US was less than stellar and we have seen some indications that US growth is slowing, if not mixed once more. Fed rhetoric on rate hikes has quietened somewhat so we may well still see additional USD weakness if signs of doubt creep into the current rate hike expectation path, we will get some good insight to that tomorrow with the FOMC due (but no change expected in policy just yet). Needless to say the labour market report on Friday will be key as well, with the headline NFP figure due to show 190k jobs added to the economy through April vs the 98k added through March.

GBP has managed to hold firm for much of the last week and even starting this morning the pound remains firm despite some mixed reports coming from the EU with regards to Brexit. The election run will likely take up a large amount of political headlines in the shorter term and for now sterling appears content that the election will mean a more agreeable Brexit for all.

Away from the politics we’ll be looking at UK PMI releases this week. Up first is the manufacturing print this morning which is expected to have slipped to 54.0 from 54.2 in March. GBPUSD still finds itself trading around 6 month high levels, the pair faced selling on Friday ahead of 1.3000 which now acts as resistance to moves higher while support around 1.2775 area needs to give way if we are to see additional downside in this pair. EURGBP is trading below .8500, firmer resistance above towards .8535 should hold any moves higher, while Fridays lows around .8404 offer interim support with .8300/30 area providing long term support, a break below there could really see declines in EURGBP accelerate.

We got very little from the ECB on Thursday, the Euro faded on the day as selling took over as it emerged the ECB had not discussed exiting easing and Draghi continued with the party line that “rates will remain at current levels or lower” for a considerable time. The market wants to know when QE will end and with the current program in place until year end any extension will amount to additional easing which should see the Euro weaker. My concern is that with a market so focused on tapering even an extension at a smaller size could well see the single currency rally.

EURUSD still has to close the gap from its spike higher post French election that comes in at 1.0735 while support now holds around 1.0850 area, with 1.0950 holding moves higher. A break out of the narrow range is required for continuation so we’ll be watching those areas closely. Data wise we have PMI prints this morning with unemployment data later in the morning, while the regions GDP reading is due for release tomorrow.

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